Where start-ups succeed

Every thriving start-up ecosystem is unique, but they all find new and better ways of bringing the right people together.

If dark clouds have been gathering ominously over the global economy of late, one chink of sunlight continues to break through the gloom. According to a recent research study by UHY, many countries are experiencing a boom in new business creation.

That’s even true of China, where economic slowdown has spread panic through boardrooms from Beijing to Berlin. In fact, it’s especially true of China, UHY’s research confirms. The world’s most populous country is outpacing the world in new business formations. Nearly 1,610,000 new companies were established in China in 2014, almost double the number created in 2010. [Data correct to end of 2014].

Second in the league table of start-up success was the UK, which registered a 51% increase in business births in 2014 compared to 2010, while other winners included India, Australia, Italy and Germany. Brazil created 22% more businesses in 2014 than 2010, but started from the highest base of any nation in the UHY survey. Over one and a half million new companies were established in Brazil in 2010.

Some of this activity is the direct result of central intervention, with governments acting to kickstart economies left reeling by the financial crisis. Lower tax rates and reduced SME bureaucracy are the most obvious manifestations of government efforts. According to UHY International chairman Bernard Fay, these efforts must continue.

“The next few years are not going to be without their own challenges, and governments globally need to find ways to help these new start-ups grow into successful businesses and even the next generation of multinationals,” he says. “In many European countries there is still a long way to go in cutting down on bureaucracy.”

Reducing business bureaucracy is one way to encourage new start-ups, but there are others. Every start-up ecosystem is shaped by its peculiar local circumstances, and experts believe the best initiatives for encouraging business creation are homegrown and pragmatic. Nevertheless, successful start-up hubs, from Paris and London to Tel Aviv and Toronto, tend to share similar core components.


Peace and prosperity

At the most basic level, start-ups need peace, political stability and a culture that promotes entrepreneurship as a worthy life choice. All three are present in Indonesia, where entrepreneurs – as the Global Entrepreneurship Monitor (GEM) reports – exhibit ‘a low fear of failure’ which results in high levels of ‘early-stage entrepreneurial activity’.

If companies are to grow, entrepreneurs need access to finance and in some economies new funding avenues are rejuvenating start-up ecosystems. Peer-to-peer lending, crowdfunding and angel investing are filling the gap left by more risk averse institutions like banks and venture capital firms. The Association for Financial Markets in Europe calculates that 30% of finance available to European companies is now non-bank funding.

Meanwhile, GEM reports that physical infrastructure is considered the most valued component of a start-up hub by the start-up companies themselves. Good transport links and high speed internet is often essential to new business in a globalised world, wherever a start-up happens to blink into life. At the same time, many new businesses need access to an educated workforce and a set of core professional services.

But while the presence of these factors is clearly advantageous, experts warn that different start-up ecosystems have different priorities, and that no ‘one size fits all’ global model exists. Slavica Singer, professor of economics at the J.J. Strossmayer University of Osijek in Croatia and co-author of the GEM Global Report, argues that what ecosystems need most of all, regardless of the speed of local broadband services, is the flexibility to change and the wisdom to do so sensibly.

“Healthy start-up environments share the ability to change quickly, but without rushing into trendy solutions without sufficient thought,” she says.